CHS INC

Previous wording

In addition, our financing and hedging businesses, along with our nonconsolidated food production and distribution and wheat milling joint ventures, have been aggregated within our Corporate and Other category.

Current wording

In addition, our financing and hedging businesses, along with our nonconsolidated food production and distribution and wheat milling joint ventures, are aggregated within our Corporate and Other category.

Previous wording

Seasonality. Many of our business activities are highly seasonal and our operating results vary throughout the year. Our revenues and IBIT generally trend lower during the second fiscal quarter and increase in the third fiscal quarter. For example, in our Ag segment, our ag retail business generally experiences higher volumes and revenues during the fall harvest and spring planting seasons, which generally correspond to our first and third fiscal quarters, respectively. Additionally, our agronomy business generally experiences higher volumes and revenues during the spring planting season. Our global grain and processing operations are subject to fluctuations in volumes and revenues based on producer harvests, world grain prices, global demand and international trade relationships. Our Energy segment generally experiences higher volumes and revenues in certain operating areas, such as refined products, in the spring, summer and early fall when gasoline and diesel fuel use by agricultural producers is highest and is subject to global supply and demand forces. Other energy products, such as propane, generally experience higher volumes and revenues during the winter heating and fall crop-drying seasons. The graphs below depict the seasonality inherent in our businesses.

Current wording

Seasonality. Many of our business activities are highly seasonal and our operating results vary throughout the year. Our revenues and IBIT generally trend lower during the second fiscal quarter and increase in the third fiscal quarter. For example, in our Ag segment, our ag retail business generally experiences higher volumes and revenues during the fall harvest and spring planting seasons, which generally correspond to our first and third fiscal quarters, respectively. Additionally, our agronomy business generally experiences higher volumes and revenues during the spring planting season. Our global grain and processing operations are subject to fluctuations in volumes and revenues based on producer harvests, world grain prices, global demand and international trade relationships. Our Energy segment generally experiences higher volumes and revenues in certain operating areas, such as refined fuel products, in the spring, summer and early fall when gasoline and diesel fuel use by agricultural producers is highest and is subject to global supply and demand forces. Other energy products, such as propane, generally experience higher volumes and revenues during the winter heating and fall crop-drying seasons. The graphs below depict the seasonality inherent in our businesses.

Previous wording

Pricing and Volumes. Our revenues, assets and cash flows can be significantly affected by global market prices and sales volumes of commodities such as petroleum products, natural gas, grain, oilseed products and agronomy products. Changes in market prices for commodities we purchase without a corresponding change in the selling prices of those products can affect revenues and operating earnings. Similarly, increased or decreased sales volumes without a corresponding change in the purchase and selling prices of those products can affect revenues and operating earnings. Commodity prices and sales volumes are affected by a wide range of factors beyond our control, including weather, crop damage due to plant disease or insects, drought, availability/adequacy of supply of a commodity, availability of reliable rail and river transportation networks, disease outbreaks, government regulations and policies, global trade disputes, wars and civil unrest, and general political and/or economic conditions.

Current wording

Pricing and Volumes. Our revenues, assets and cash flows can be significantly affected by global market prices and sales volumes of commodities such as petroleum products, natural gas, grain, oilseed products and agronomy products. Changes in market prices for commodities we purchase without a corresponding change in the selling prices of those products can affect revenues and operating earnings. Similarly, increased or decreased sales volumes without a corresponding change in the purchase and selling prices of those products can affect revenues and operating earnings. Commodity prices and sales volumes are affected by a wide range of factors beyond our control, including weather, crop damage due to plant disease or insects, drought, availability/adequacy of supply of a commodity, availability of reliable rail, river, truck and ocean transportation networks, disease outbreaks, government regulations and policies, global trade disputes, wars and civil unrest, and general political and/or economic conditions.

Previous wording

Our segments operate in cyclical environments in which market conditions can change rapidly with significant positive or negative impacts on our results. We anticipate various macroeconomic factors will continue to drive uncertainty and instability in global energy and agricultural commodity markets, as well as global financial markets, which could have a significant impact on each of our segments during fiscal 2025. These factors include, among others, the ongoing war between Russia and Ukraine and further escalation of conflict in the Middle East; shifts in global trade flows for commodities, including global competitiveness giving rise to a weak export market for U.S. sourced agricultural products; potential changes in U.S. trade policy under the new U.S. administration taking office in January 2025; a changing interest rate environment; and continued pricing pressures impacting costs of labor, freight and materials. These factors, or any form of them, could cause significant margin pressure and lower profitability. In addition to these broad macroeconomic factors, other factors could impact demand and pricing for agricultural inputs and outputs, as well as our ability to supply those inputs and outputs while remaining profitable. These include the cost of renewable energy credits, the prices of which have experienced volatility in recent years and could positively or negatively impact our profitability, and regional factors, such as unpredictable weather conditions, including those due to climate change. We currently expect global economic factors impacting energy and agricultural commodities to continue to be less favorable for us during the remainder of fiscal 2025, as compared to fiscal 2024. Further, in light of increasing uncertainty in the markets we serve, we are unable to predict how long the current environment will last or the significance of the financial and operational impacts to us; however, we currently expect the trend of significantly reduced margins for energy and agricultural commodities to persist or accelerate through the remainder of fiscal 2025. Refer to Item 1A of our Annual Report on Form 10-K for the year ended August 31, 2024, for additional impacts these and other risks may have on our business operations and financial performance.

Current wording

Our segments operate in cyclical environments in which market conditions can change rapidly with significant positive or negative impacts on our results. We anticipate various macroeconomic factors will continue to drive uncertainty and instability in global energy and agricultural commodity markets, as well as global financial markets, which could have a significant impact on each of our segments during fiscal 2025. These factors include, among others, changes and uncertainty of potential changes in U.S. trade policy, including tariffs and resulting retaliatory actions from other countries on products we purchase or sell, resulting in U.S. commodity exports being less competitive in global markets; the ongoing war between Russia and Ukraine and further escalation of conflict in the Middle East; shifts in global trade flows for commodities, including global competitiveness giving rise to a weak export market for U.S.-sourced agricultural products; an uncertain interest rate environment; and continued pricing pressures impacting costs of labor, freight and materials. These factors, or any form or combination of them, could cause significant margin pressure and lower profitability. In addition to these broad macroeconomic factors, other factors could impact demand and pricing for agricultural inputs and outputs, as well as our ability to supply those inputs and outputs while remaining profitable. These include the cost of renewable energy credits, the prices of which have experienced volatility in recent years and could positively or negatively impact our profitability, and regional factors, such as unpredictable weather conditions, including those due to climate change. We currently expect global economic factors impacting energy and agricultural commodities to continue to be less favorable during the remainder of fiscal 2025, as compared to fiscal 2024. Further, in light of increasing uncertainty in the markets we serve, we are unable to predict how long the current environment will last or the significance of the financial and operational impacts to us; however, we currently expect the trend of significantly reduced margins for energy and agricultural commodities to persist or accelerate through the remainder of fiscal 2025. Refer to Item 1A of our Annual Report on Form 10-K for the year ended August 31, 2024, for additional impacts these and other risks may have on our business operations and financial performance.

Previous wording

We are subject to the Renewable Fuel Standard that requires refiners to blend renewable fuels (e.g., ethanol and biodiesel) into their finished transportation fuels or purchase renewable energy credits, known as renewable identification numbers ("RINs"), in lieu of blending. The U.S. Environmental Protection Agency ("EPA") generally establishes new annual renewable fuel percentage standards for each compliance year in the preceding year. In June 2023, the EPA issued a final renewable volume obligation ("RVO") for calendar years 2020 through 2025. We generate RINs through our blending activities, but we cannot generate enough RINs to meet the needs of our refining capacity; therefore, RINs must be purchased on the open market. The price of RINs can be volatile, with prices for D6 ethanol RINs and D4 biodiesel RINs both decreasing by 32% during the three months ended November 30, 2024, compared to the same period during the prior fiscal year, which positively impacted our earnings. Estimates of our RIN expenses are calculated using an average RIN price each month.

Current wording

We are subject to the Renewable Fuel Standard that requires refiners to blend renewable fuels (e.g., ethanol and biodiesel) into their finished transportation fuels or purchase renewable energy credits, known as renewable identification numbers ("RINs"), in lieu of blending. The U.S. Environmental Protection Agency ("EPA") generally establishes new annual renewable fuel percentage standards for each compliance year in the preceding year. In June 2023, the EPA issued a final renewable volume obligation ("RVO") for calendar years 2020 through 2025. We generate RINs through our blending activities, but we cannot generate enough RINs to meet the needs of our refining capacity; therefore, RINs must be purchased on the open market. The price of RINs can be volatile, with prices for D6 ethanol RINs and D4 biodiesel RINs increased by 5% and 8%, respectively, during the three months ended February 28, 2025, compared to the same period during the prior fiscal year. Estimates of our RIN expenses are calculated using an average RIN price each month.

Previous wording

In addition to our internal operational reliability, the profitability of our Energy segment is largely driven by crack spreads (i.e., the price differential between refined products and crude oil inputs) and Western Canadian Select ("WCS") crude oil discounts (i.e., the price discount for WCS crude oil relative to West Texas Intermediate ("WTI") crude oil), which are driven by supply and demand of refined products. Crack spreads and WCS crude oil discounts both decreased during the three months ended November 30, 2024, compared to the same period during the prior fiscal year, contributing to lower IBIT for the Energy segment. The table below provides information about average market reference prices and differentials that impacted our Energy segment:

Current wording

In addition to our internal operational reliability, the profitability of our Energy segment is largely driven by crack spreads (i.e., the price differential between refined products and crude oil inputs) and Western Canadian Select ("WCS") crude oil discounts (i.e., the price discount for WCS crude oil relative to West Texas Intermediate ("WTI") crude oil), which are driven by supply and demand of refined products. Crack spreads and WCS crude oil discounts both decreased during the three and six months ended February 28, 2025, compared to the same period during the prior fiscal year, contributing to significantly lower IBIT for the Energy segment. The table below provides information about average market reference prices and differentials that impacted our Energy segment:

Previous wording

Income Before Income Taxes by Segment

Current wording

(Loss) Income Before Income Taxes by Segment

Previous wording

•Decreased selling prices across most of our Ag segment product categories due to global market conditions experienced during the first quarter of fiscal 2025, including:

Current wording

•Decreased selling prices across most of our Ag segment product categories due to global market conditions experienced during the second quarter of fiscal 2025, including:

Previous wording

◦$113.1 million and $75.3 million decreases for oilseed processing and renewable fuels, respectively, resulting from lower input costs; and

Current wording

◦$135.2 million decrease for oilseed processing; and

Previous wording

Interest expense decreased during the three months ended November 30, 2024, as a result of lower interest rates, which was partially offset by a higher long-term debt balance compared to the same period in the prior fiscal year.

Current wording

Interest expense decreased during the three months ended February 28, 2025, as a result of lower interest rates, which was mostly offset by higher notes payable and long-term debt balances compared to the same period in the prior fiscal year.

Previous wording

•Significantly lower crack spreads and decreased WCS crude oil discounts resulted from less favorable global market conditions, including the impact of higher U.S. refinery capacity utilization and global production, compared to the same period of the prior fiscal year, which contributed to a $237.8 million decrease of IBIT.

Current wording

•Significantly lower crack spreads and WCS crude oil discounts resulted from less favorable global market conditions, including the impact of higher U.S. refinery capacity utilization, global production and additional export opportunities for Canadian crude oil, compared to the same period of the prior fiscal year, which contributed to a $366.0 million decrease of IBIT.

Previous wording

•A $62.8 million decrease for oilseed processing due to a higher supply of canola and soybean meal and oil across global markets, resulting in lower crush margins compared to the prior fiscal year;

Current wording

•Decreased margins for our oilseed processing product category, due to higher global supply of canola and soybean meal and oil, resulting in lower crush margins compared to the prior fiscal year, contributed to a $73.0 million decrease in IBIT.

Previous wording

•An $11.1 million decrease for wholesale and retail agronomy that resulted primarily from market-driven price decreases; and

Current wording

•Decreased margins for wholesale and retail agronomy products resulted from market-driven price decreases, contributed to a $14.8 million decrease of IBIT.

Previous wording

Our Nitrogen Production segment IBIT decreased from the prior fiscal year due to lower equity income attributed to decreased selling prices of urea and higher interest expense, which were partially offset by decreased natural gas costs, all due to global supply and demand factors. There were no significant changes on a dollar basis to IBIT in Corporate and Other during the three months ended November 30, 2024, compared to the same period during the prior fiscal year.

Current wording

Our Nitrogen Production segment IBIT decreased from the prior fiscal year primarily due to lower equity income attributed to decreased selling prices of urea and UAN, as well as higher natural gas costs, all due to global supply and demand factors. Corporate and Other IBIT decreased primarily as a result of lower income from our equity investment in Ventura Foods from less favorable market conditions for oil-based food products, during the six months ended February 28, 2025, compared to the same period during the prior fiscal year.

Previous wording

•Global market conditions contributed to decreased selling prices for refined fuels that resulted in a $554.7 million decrease in revenues.

Current wording

•Global market conditions contributed to decreased selling prices for refined fuels that resulted in a $650.2 million decrease in revenues.

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◦$1.3 billion decrease for grain and oilseed;

Current wording

◦$2.0 billion decrease for grain and oilseed;

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◦$20.5 million decrease for wholesale and retail agronomy products.

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◦$76.3 million decrease for wholesale and retail agronomy products.

Previous wording

There were no significant changes on a dollar basis to Corporate and Other revenues during the three months ended November 30, 2024, compared to the same period during the prior fiscal year.

Current wording

There were no significant changes on a dollar basis to Corporate and Other revenues during the six months ended February 28, 2025, compared to the same period during the prior fiscal year.

Previous wording

•Decreased costs resulting from global market conditions contributed to a $314.4 million decrease in COGS for refined fuels.

Current wording

•Decreased costs resulting from global market conditions contributed to a $274.3 million decrease in COGS for refined fuels.

Previous wording

◦$78.6 million decrease for renewable fuels; and

Current wording

◦$84.3 million decrease for renewable fuels; and

Previous wording

Increased income tax expense during the three months ended November 30, 2024, resulted primarily from the recognition of fewer research and development tax credits during the current fiscal year and the impact of equity management assumptions compared to the same period of the prior year, which were partially offset by lower nonpatronage earnings. Effective tax rates for the three months ended November 30, 2024 and 2023, were 5.1% and (1.3)%, respectively. A federal and state statutory rate of 24.5% was applied to nonpatronage business activity for the three months ended November 30, 2024 and 2023. Income taxes and effective tax rates vary each year based on profitability, income tax credits, nonpatronage business activity and current equity management assumptions.

Current wording

Decreased income tax expense during the six months ended February 28, 2025, resulted primarily from lower earnings during the current fiscal year, which was partially offset by the recognition of fewer research and development tax credits and the impact of equity management assumptions compared to the same period of the prior year. Effective tax rates for the six months ended February 28, 2025, and February 29, 2024, were 2.6% and 1.3%, respectively. A federal and state statutory rate of 24.5% was applied to nonpatronage business activity for the three months ended February 28, 2025, and February 29, 2024. Income taxes and effective tax rates vary each year based on profitability, income tax credits, nonpatronage business activity and current equity management assumptions.

Previous wording

In assessing our financial condition, we consider factors such as working capital, internal benchmarking related to our applicable covenants and other financial information. The following financial information is used when assessing our liquidity and capital resources to meet our capital allocation priorities, which include maintaining the safety and compliance of our operations, paying interest on debt and preferred stock dividends, returning cash to our member-owners in the form of cash patronage and equity redemptions, and taking advantage of strategic opportunities that benefit our member-owners:

Current wording

In assessing our financial condition, we consider factors such as working capital, internal benchmarking related to our applicable covenants and other financial information. The following financial information is used when assessing our liquidity and capital resources to meet our capital allocation priorities, which include maintaining the safety and compliance of our operations, meeting debt maturity obligations, paying interest on debt and preferred stock dividends, returning cash to our member-owners in the form of cash patronage and equity redemptions, and taking advantage of strategic opportunities that benefit our member-owners:

Previous wording

•Capital expenditures. We expect total capital expenditures for fiscal 2025 to be approximately $837.3 million, compared to capital expenditures of $808.8 million in fiscal 2024, as we continue to invest in capital projects to meet the evolving needs of our owners and customers, enhance value for the cooperative system and focus on targeted growth during fiscal 2025. In addition, we expect more than $225.0 million in incremental expenditures for business acquisitions during fiscal 2025. During the three months ended November 30, 2024, we acquired $192.7 million of property, plant and equipment.

Current wording

•Capital expenditures. We expect total capital expenditures for fiscal 2025 to be approximately $764.3 million, compared to capital expenditures of $808.8 million in fiscal 2024, as we continue to invest in capital projects to meet the evolving needs of our owners and customers, enhance value for the cooperative system and focus on targeted growth during fiscal 2025. During the six months ended February 28, 2025, we acquired $357.6 million of property, plant and equipment. In addition, we acquired WCAS for $321.6 million. This acquisition expands our grain and agronomy platforms in west-central Minnesota and eastern North Dakota. and adds value for our owners. See Note 15, Acquisition, of the notes to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information.

Previous wording

•Major maintenance. We expect total major maintenance for fiscal 2025 to be approximately $256.9 million, compared to major maintenance of $22.7 million in fiscal 2024. Increased major maintenance expectations for fiscal 2025 is due to a scheduled turnaround at our McPherson refinery. During the three months ended November 30, 2024, we paid $11.1 million in major maintenance.

Current wording

•Major maintenance. We expect total major maintenance for fiscal 2025 to be approximately $247.5 million, compared to major maintenance of $22.7 million in fiscal 2024. Increased major maintenance expectations for fiscal 2025 is due to a scheduled turnaround at our McPherson refinery. During the six months ended February 28, 2025, we paid $45.7 million in major maintenance.

Previous wording

•Debt and interest. We expect to repay approximately $339.6 million of long-term debt and finance lease obligations and incur interest payments related to long-term debt of approximately $101.7 million during fiscal 2025. During the three months ended November 30, 2024, we repaid $1.1 million of scheduled long-term debt maturities and finance lease obligations.

Current wording

•Debt and interest. We expect to repay approximately $339.6 million of long-term debt and finance lease obligations and incur interest payments related to long-term debt of approximately $101.7 million during fiscal 2025. During the six months ended February 28, 2025, we repaid $155.7 million of scheduled long-term debt maturities and finance lease obligations.

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•Preferred stock dividends. We had approximately $2.3 billion of preferred stock outstanding as of November 30, 2024. We expect to pay dividends on our preferred stock of approximately $168.7 million during fiscal 2025. Dividends paid on our preferred stock during the three months ended November 30, 2024, were $42.2 million.

Current wording

•Preferred stock dividends. We had approximately $2.3 billion of preferred stock outstanding as of February 28, 2025. We expect to pay dividends on our preferred stock of approximately $168.7 million during fiscal 2025. Dividends paid on our preferred stock during the six months ended February 28, 2025, were $84.3 million.

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•Patronage. Our Board of Directors authorized approximately $300.0 million of our fiscal 2024 patronage-sourced earnings to be paid to our member-owners during fiscal 2025.

Current wording

•Patronage. Our Board of Directors authorized approximately $300.0 million of our fiscal 2024 patronage-sourced earnings to be paid to our member-owners during fiscal 2025. During the six months ended February 28, 2025, we distributed $229.5 million of cash patronage related to the year ended August 31, 2024, with the remaining amount expected to be distributed in the third quarter of fiscal 2025.

Previous wording

•Equity redemptions. Our Board of Directors authorized approximately $300.0 million of equity redemptions to be distributed in fiscal 2025 in the form of redemptions of qualified and nonqualified equity owned by individual producer-members and association members. During the three months ended November 30, 2024, we redeemed $9.8 million of member equity.

Current wording

•Equity redemptions. Our Board of Directors authorized approximately $300.0 million of equity redemptions to be distributed in fiscal 2025 in the form of redemptions of qualified and nonqualified equity owned by individual producer-members and association members. During the six months ended February 28, 2025, we redeemed $16.3 million of member equity.

Previous wording

Our notes payable and long-term debt are subject to various restrictive requirements for maintenance of minimum consolidated net worth and other financial ratios. We were in compliance with all debt covenants and restrictions as of November 30, 2024. Based on our current fiscal 2025 projections, we expect continued covenant compliance.

Current wording

We believe cash generated by operating and investing activities, along with available borrowing capacity under our credit facilities, will be sufficient to support our short-term (the next 12 months) and long-term (beyond 12 months) operations. Our notes payable and long-term debt are subject to various restrictive requirements for maintenance of minimum consolidated net worth and other financial ratios. We were in compliance with all debt covenants and restrictions as of February 28, 2025. Based on our current fiscal 2025 projections, we expect continued covenant compliance.

Previous wording

As of November 30, 2024, working capital decreased by $19.1 million compared to August 31, 2024. Current asset balance changes increased working capital by $649.4 million, primarily driven by increases in inventories and receivables, which were driven by the fall harvest. Current liability balance changes decreased working capital by $668.6 million, primarily due to increases in accounts payable, which were also driven by the fall harvest.

Current wording

As of February 28, 2025, working capital decreased by $394.0 million compared to August 31, 2024. Current asset balance changes increased working capital by $988.0 million, primarily due to an increase in inventories, which were driven by seasonality in our business. Current liability balance changes decreased working capital by $1.4 billion, primarily due to increases in notes payable, which were also driven by seasonality in our business as well as decreased profitability.

Previous wording

For information regarding our estimated contractual obligations, see the MD&A discussion included in Item 7 of Part II of our Annual Report on Form 10-K for the year ended August 31, 2024. No material changes occurred during the three months ended November 30, 2024.

Current wording

For information regarding our estimated contractual obligations, see the MD&A discussion included in Item 7 of Part II of our Annual Report on Form 10-K for the year ended August 31, 2024. No material changes occurred during the six months ended February 28, 2025.

Previous wording

The following table presents summarized cash flow data for the three months ended November 30, 2024 and 2023:

Current wording

The following table presents summarized cash flow data for the six months ended February 28, 2025, and February 29, 2024:

Previous wording

Cash flows from operating activities can fluctuate significantly from period to period as a result of various factors, including seasonality and timing differences associated with purchases, sales, taxes and other business decisions. The $146.4 million increase in cash used in operating activities primarily reflects decreased accounts payable, as well as decreased net income, which was partially offset by a decrease in receivables, during the first three months of fiscal 2025 compared to the same period during fiscal 2024.

Current wording

Cash flows from operating activities can fluctuate significantly from period to period as a result of various factors, including seasonality and timing differences associated with purchases, sales, taxes and other business decisions. The $934.6 million increase in cash used in operating activities primarily reflects increased inventories, decreased accounts payable and decreased net income, which were partially offset by decreased receivables, during the first six months of fiscal 2025 compared to the same period during fiscal 2024.

Previous wording

The $138.5 million decrease of cash used in financing activities relative to the previous year primarily reflects increased net cash inflows associated with our notes payable due to increased short-term funding needs for working capital.

Current wording

The $1.6 billion decrease in cash used in financing activities primarily reflects increased net cash inflows associated with our notes payable due to increased short-term funding needs for working capital.

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Our critical accounting policies as presented in the MD&A in our Annual Report on Form 10-K for the year ended August 31, 2024, have not materially changed during the three months ended November 30, 2024.

Current wording

Our critical accounting policies as presented in the MD&A in our Annual Report on Form 10-K for the year ended August 31, 2024, have not materially changed during the six months ended February 28, 2025.